80 FR 104 pgs. 31084-31087 - Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Order Granting Approval of a Proposed Rule Change Consisting of Proposed Amendments to the MSRB Rule G-14 RTRS Procedures, and the Real-Time Transaction Reporting System and Subscription Service
Type: NOTICEVolume: 80Number: 104Pages: 31084 - 31087
Pages: 31084, 31085, 31086, 31087Docket number: [Release No. 34-75039; File No. SR-MSRB-2015-02]
FR document: [FR Doc. 2015-13082 Filed 5-29-15; 8:45 am]
Agency: Securities and Exchange Commission
Official PDF Version: PDF Version
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-75039; File No. SR-MSRB-2015-02]
Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Order Granting Approval of a Proposed Rule Change Consisting of Proposed Amendments to the MSRB Rule G-14 RTRS Procedures, and the Real-Time Transaction Reporting System and Subscription Service
May 22, 2015.
I. Introduction
On March 19, 2015, the Municipal Securities Rulemaking Board (the "MSRB" or "Board") filed with the Securities and Exchange Commission (the "SEC" or "Commission"), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 ("Act")1and Rule 19b-4 thereunder,2a proposed rule change consisting of proposed amendments to the MSRB Rule G-14 RTRS procedures, and the Real-Time Transaction Reporting System and subscription service (the "proposed rule change"). The proposed rule change was published for comment in the Federal Register on March 27, 2015.3
Footnotes:
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b-4.
3 Securities Exchange Act Release No. 74564 (March 23, 2015), 80 FR 16466 (March 27, 2015) (the "Proposing Release").
The Commission received three comment letters on the proposed rule change.4On May 20, 2015, the MSRB submitted a response to these comments.5This order approves the proposed rule change.
Footnotes:
4 See Letters from Leslie M. Norwood, Managing Director and Associate General Counsel, Securities Industry and Financial Markets Association ("SIFMA"), dated April 17, 2015 ("SIFMA Letter"); Michael Nicholas, Chief Executive Officer, Bond Dealers of America ("BDA"), dated April 17, 2015 ("BDA Letter"); and David T. Bellaire, Esq., Executive Vice President & General Counsel, Financial Services Institute ("FSI"), dated April 17, 2015 ("FSI Letter").
5 See Letter from Justin R. Pica, Director of Product Management-Market Transparency, MSRB, dated May 20, 2015 ("MSRB Response Letter").
II. Description of the Proposed Rule Change
Rule G-14 on reports of sales or purchases requires brokers, dealers and municipal securities dealers (collectively "dealers") to report all executed transactions in municipal securities to the MSRB's Real-Time Transaction Reporting System ("RTRS") within 15 minutes of the time of trade, with limited exceptions.6The MSRB makes certain transaction data reported to RTRS available to the general public through the Electronic Municipal Market Access ("EMMA") Web site at no cost, and disseminates such data through paid subscription services to market data vendors, institutional market participants and others that subscribe to the data feed.7The MSRB believes that RTRS serves the dual objectives of price transparency and market surveillance.8According to the MSRB, the proposed rule change would enhance the post-trade price transparency information provided through RTRS.9A full description of the proposed rule change is contained in the Proposing Release.
Footnotes:
6 See supra note 3.
7 Id.
8 Id.
9 Id.
1. Expanding the Application of Existing List Offering Price and Takedown Transaction Indicator
The MSRB stated that the proposed rule change would expand the application of the List Offering Price and Takedown Transaction indicators to sale transactions by distribution participant dealers to customers at the list offering price and sale transactions by a sole underwriter or syndicate manager to distribution participant dealers.10The MSRB stated that since the introduction of the List Offering Price indicator in 2005 and Takedown Transaction indicator in 2007, certain market practices in this area have evolved and the proposed rule change would expand the application of the indicators to require reporting of such market practices to RTRS.11
Footnotes:
10 Id.
11 Id.
2. Eliminating the Requirement for Dealers To Report Yield on Customer Trade Reports
The MSRB stated that the proposed rule change would eliminate the requirement for dealers to include yield on customer trade reports.12The MSRB represented that it would calculate and disseminate yield on customer trade reports, consistent with the manner in which it calculates and includes in disseminated RTRS information yield on inter-dealer trades.13The MSRB believes that this would remove one aspect of a dealer's burden in reporting customer transactions to the MSRB in compliance with MSRB Rule G-14 and ensure that the calculation and dissemination of yields for both inter-dealer and customer transactions are consistent.14
Footnotes:
12 Id.
13 Id.
14 Id.
3. Establishing a New Indicator for Customer Trades Involving Non-Transaction-Based Compensation Arrangements
The MSRB stated that the proposed rule change would require dealers to include a new indicator on their trade reports that would be disseminated publicly to distinguish customer transactions that do not include a dealer compensation component and those that include a mark-up, mark-down, or a commission.15The MSRB believes the proposed rule change would improve the usefulness of the transaction information disseminated publicly.16
Footnotes:
15 Id.
16 Id.
4. Establishing a New Indicator for ATS Transactions
The MSRB stated that the proposed rule change would establish an additional new indicator to better ascertain the extent to which alternative trading systems ("ATSs") are used in the municipal market and to indicate to market participants on disseminated transaction information that an ATS was used.17The MSRB believes that identifying in disseminated transaction information that an ATS was employed should facilitate higher quality research and analysis of market structure by providing information about the extent to which ATSs are used and should complement the existing indicator disseminated for transactions involving a broker's broker.18
Footnotes:
17 Id.
18 Id.
5. Effective Date of the Proposed Rule Change/Testing Period
The MSRB proposed that an effective date for the proposed rule change would be announced by the MSRB in a notice published on the MSRB's Web site.19The MSRB stated that the date would be no later than May 23, 2016, and announced no later than sixty (60) days prior to the effective date.20The MSRB believed that such effective date would provide time for the MSRB to undertake the programming changes to implement the proposed rule change, as well as provide an adequate testing period for dealers and subscribers that interface with RTRS.21Also, the MSRB plans to provide a six month testing period in advance of the effective date.22
Footnotes:
19 Id.
20 Id.
21 Id.
22 Id.
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III. Summary of Comments Received and the MSRB's Response
As noted previously, the Commission received three comment letters on the proposed rule change.23FSI generally supports the proposed rule change.24BDA generally supports the proposed rule change but suggested an extension of the testing period.25SIFMA expresses concerns and provides suggestions about certain aspects of the proposed rule change.26A full description of the comments and response by the MSRB are contained in the comments letters and MSRB Response Letter, respectively.27
Footnotes:
23 See supra notes 4 and 5.
24 See FSI Letter.
25 See BDA Letter.
26 See SIFMA Letter.
27 See supra notes 4 and 5.
1. Expanding the Application of Existing List Offering Price and Takedown Transaction Indicator
SIFMA generally supports this aspect of the proposed rule change.28However, SIFMA requests that if dealers are currently using the List Offering Price and Takedown Transaction indicator for group net or net designated orders, or for distribution agreement trades, that they be permitted to continue to do so until the proposed rule change is effective, without risk of an enforcement action.29The MSRB responded by stating that it does not believe it would be fair to those dealers that have not programmed systems to use the existing List Offering Price and Takedown Transaction indicator in the expanded manner contemplated in the proposed rule change to advance the timing of the effective date of this component of the proposed rule change.30Also, the MSRB does not believe such a request is relevant to a determination of whether to approve the proposed rule change.31
Footnotes:
28 See SIFMA Letter.
29 Id.
30 See MSRB Response Letter.
31 Id.
2. Eliminating the Requirement for Dealers To Report Yield on Customer Trade Reports
SIFMA generally supports this aspect of the proposed rule change.32However, SIFMA notes that reporting yield on trade reports alerts dealers to trades where the dealer calculated yield is outside the acceptable tolerance from the MSRB calculated yield.33SIFMA notes that such alert mechanism would be eliminated if the proposed rule change is approved.34The MSRB responded by noting that while such alert mechanism does provide benefit in identifying security master and day count discrepancies, the MSRB does not believe that this benefit outweighs the burden on dealers associated with researching and reconciling all questionable errors.35Also, the MSRB notes that dealers would continue to be able to compare dealer calculated yields with MSRB calculated yields by viewing MSRB calculated yields on the EMMA Web site.36
Footnotes:
32 See SIFMA Letter.
33 Id.
34 Id.
35 See MSRB Response Letter.
36 Id.
In addition, SIFMA continues to have concerns that the proposed rule change may lead to investor confusion because not all transactions are consummated based on yield to worst.37SIFMA believes that there are many reasons and scenarios why the dealer calculated yield and the MSRB's calculations of yield might not match, such as trading based on yield-to-average life for continuously callable securities, and differences in day counts relating to questionable holidays or market closes.38The MSRB responded by stating that the MSRB yield calculations under the proposed rule change would be done in a manner consistent with the requirements of MSRB Rule G-15(a) on customer confirmations.39Accordingly, the MSRB believes irrespective of the basis on which the transaction was executed, the yield calculation performed by RTRS under the proposed rule change would match the calculation as required to be performed by dealers when generating customer confirmations.40Also, the MSRB states that with regard to the potential for differing MSRB and dealer call information resulting in differing MSRB and dealer calculated yields, the MSRB plans to display the call price and date to which yield was calculated, which should provide sufficient transparency to the inputs used in MSRB yield calculations to explain any calculation differences that arise.41
Footnotes:
37 See SIFMA Letter.
38 Id.
39 See MSRB Response Letter.
40 Id.
41 Id.
3. Establishing a New Indicator for Customer Trades Involving Non-Transaction-Based Compensation Arrangements
SIFMA acknowledges that the establishment of a new indicator to indicate trades with non-transaction-based compensation would be helpful for transparency purposes.42However, SIFMA suggest that a more cost efficient alternative would be for the MSRB to disseminate information it already collects: Whether a trade is done as agent or as principal, and whether the MSRB has added commission in to "normalize" agency trades.43The MSRB responded by stating it believes that to ensure that this new indicator applies to all transactions involving non-transaction-based compensation, it is critical that the indicator apply to principal trades that do not include a mark-up or mark-down.44The MSRB also believes that it is important for dealers to affirmatively indicate on agency transactions that no commission was charged using the new indicator.45The MSRB believes this would provide for an additional data quality measure as well as enable dealers to program systems to include the indicator for all transactions involving non-transaction-based compensation as opposed to only a subset of such transactions.46
Footnotes:
42 See SIFMA Letter.
43 Id.
44 See MSRB Response Letter.
45 Id.
46 Id.
In addition, SIFMA suggests modifying the proposed definition of "non-transaction-based compensation arrangement transaction."47Specifically, SIFMA requests that the definition be limited to transactions involving non-transaction-based compensation "in a customer account that is subject to an arrangement that does not provide for dealer compensation to be paid on a transaction-based basis."48The MSRB responded by stating that it is not proposing to limit the application of the indicator in this manner because this indicator is intended to distinguish in price transparency data all customer transactions that do not include a dealer compensation component from those that include a mark-up, mark-down or commission and is not intended to distinguish such transactions based on the type of compensation arrangement associated with a customer account.49
Footnotes:
47 See SIFMA Letter.
48 Id.
49 See MSRB Response Letter.
4. Establishing a New Indicator for ATS Transactions
[top] SIFMA suggests an alternative where the MSRB is responsible for flagging ATS trades when an ATS firm takes a principal position between a buyer and a seller, similar to how it currently flags trades between dealers and municipal securities broker's brokers.50SIFMA believes this would eliminate the unnecessary and burdensome requirements of the proposed rule
Footnotes:
50 See SIFMA Letter.
51 Id.
52 See MSRB Response Letter.
53 Id.
5. Economic Considerations
SIFMA expresses concern about the costs and burdens associated with the proposed rule change.54SIFMA believes that evaluating the costs and burdens of new regulation and weighing those costs against any benefits derived from such new regulation, is critical to ensure efficient regulation.55SIFMA states that the proposed rule change will drive up transaction costs and certain aspects of the proposed rule change do not measure up to the costs and burdens that will be imposed upon dealers.56The MSRB responded by noting that in each of the three solicitations for public comment the MSRB requested input on the operational costs and burdens of each proposed change as well as the benefits that could be achieved.57According to the MSRB, the responses from commenters, to the extent they addressed those issues, well informed the MSRB's determination to seek those changes that would balance the improvements to post-trade price transparency with the regulatory burdens that would be imposed on dealers.58Also, the comments received through the public comment process enabled the MSRB to refine a broad set of potential changes that could be made to the limited set of changes in the proposed rule change.59The MSRB believes that the proposed rule change best balances the improvements to post-trade price transparency that would be gained with the regulatory burdens that would be imposed on dealers.60
Footnotes:
54 See SIFMA Letter.
55 Id.
56 Id.
57 See MSRB Response Letter.
58 Id.
59 Id.
60 Id.
6. Effective Date of the Proposed Rule Change/Testing Period
SIFMA requests that the MSRB publish technical specifications related to the proposed rule change at least nine months prior to the effective date of the proposed rule change.61BDA notes that smaller dealers with fewer IT resources may need more than six months to make changes necessary to comply with the proposal.62Specifically, BDA requests a testing period of at least nine months prior to implementation.63The MSRB anticipates publishing updated technical specifications in early September 2015.64In response to comments from SIFMA and BDA, the MSRB now intends to set a specific effective date of May 23, 2016, which is the latest effective date contemplated by the proposed rule change. The MSRB believes this effective date would likely provide dealers and subscribers with nearly nine months to make necessary system changes after publication by the MSRB of technical specifications.65
Footnotes:
61 See SIFMA Letter.
62 See BDA Letter.
63 Id.
64 See MSRB Response Letter.
65 Id.
IV. Discussion and Commission Findings
The Commission has carefully considered the proposed rule change, the comments received, and the MSRB's response to such comments. The Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to the MSRB.
In particular, the Commission finds that the proposed rule change is consistent with Section 15B(b)(2)(C) of the Act,66which requires, among other things, that the rules of the MSRB be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in municipal securities and municipal financial products, to remove impediments to and perfect the mechanism of a free and open market in municipal securities and municipal financial products, and, in general, to protect investors, municipal entities, obligated persons, and the public interest. The Commission believes that the proposed rule change is consistent with Section 15B(b)(2)(C) of the Act because the proposed rule change is reasonably designed to remove impediments to and perfect the mechanism of a free and open market in municipal securities by increasing the quality and usefulness of the post-trade price transparency information provided through RTRS. As noted by the MSRB, the (i) expansion of the application of the existing List Offering Price and Takedown Transaction indicator to cases involving distribution participant dealers and takedown transactions that are not at a discount from the list offering price, (ii) establishment of a new indicator for customer trades involving non-transaction-based compensation arrangements, and (iii) establishment of a new indicator for ATS transactions would enable users of the post-trade price transparency information provided through RTRS to better understand the pricing of certain transactions as well as how such transactions were executed.67As further noted by the MSRB, identifying in disseminated transaction information that an ATS was employed should facilitate higher quality research and analysis of market structure by providing information about the extent to which ATSs are used and should complement the existing indicator disseminated for transactions involving a broker's broker.68Accordingly, the Commission believes that the proposed rule change would contribute to the MSRB's continuing efforts to improve market transparency and to protect investors, municipal entities, obligated persons and the public interest.
Footnotes:
66 15 U.S.C. 78 o -4(b)(2)(C).
67 See supra note 4.
68 Id.
[top] In approving the proposed rule change, the Commission has considered the proposed rule change's impact on efficiency, competition, and capital formation.69The Commission recognizes that the proposed rule change would impose a burden on dealers and subscribers that interface with RTRS to comply with the reporting and dissemination of the new indicators that would be required by the proposed rule change. However, the Commission believes that the potential burden created by the proposed rule change is likely outweighed by the benefits, such as increasing the quality and usefulness of post-trade price transparency information. Also, the Commission believes that the proposed rule change includes accommodations that help promote efficiency. Specifically, the
Footnotes:
69 15 U.S.C. 78c(f).
As noted above, the Commission received three comment letters on the filing. The Commission believes that the MSRB considered carefully and responded adequately to comments and concerns regarding the proposed rule change. Although one commenter suggested changes and opposed certain aspects of the proposed rule change, the Commission notes that no commenters argued that the proposed rule change was inconsistent with the applicable provisions of the Act.
For the reasons noted above, including those discussed in the MSRB Response Letter, the Commission believes that the proposed rule change is consistent with the Act.
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,70that the proposed rule change (SR-MSRB-2015-02) be, and hereby is, approved.
Footnotes:
70 15 U.S.C. 78s(b)(2).
For the Commission, pursuant to delegated authority.71
Footnotes:
71 17 CFR 200.30-3(a)(12).
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-13082 Filed 5-29-15; 8:45 am]
BILLING CODE 8011-01-P